Simple Moving Averages That Actually Work

0:00 Today I have a very dynamic presentation for you. A talk on a topic that I actually get millions of questions on and many of them come in week by week on the best moving averages. Now in truthfully I get a lot of questions on um because my approach to the market is primarily technical. I get a lot of questions on a variety of different indicators if you will. And while I'm not a very very big indicatorheavy trader, I do rely on moving averages predominantly and for good reason. As far as I'm concerned, moving averages are the most important indicators you can use to help you determine what the best direction of your trade should be.

0:46 The moving averages can help you with timing and the moving average can help up your level of consistency and profitability. And I'm going to show you not only the best moving averages to use in your trading irrespective of your style of market play. I'm not going to show you the best ones to use. I'm going to show you specifically how each one of those best moving averages should be used to increase your consistency and profitability in your trading. What do we need to understand? What do we need to understand and what do we need to actually start knowing how to use the key moving averages properly? First of all, we need money. We need a 50 to $100,000 account. Guys, you can't play

1:33 this game with baby money. You can't show up to a gunfight with a with a with a dull knife and think you have a chance. You can't. You have to be well capitalized. I help traders become well capitalized. In fact, I tell traders they should not be trading with their own capital. They should be trading with my capital or someone else's capital. But this is one of the key key secrets on Wall Street. You are a better trader when it's not your money. This is a fact. You are not as smart with your money. You are not as disciplined with your money. You're more disciplined with my money or someone else's money. This is what the hedge fund industry operates on. This is what Wall Street operates on. No one professional uses their own capital. So why is that? First of all, you do better with other people's

2:19 capital. In addition to that, traders, there's more of someone else's capital than you have. So why limit your talent only to your capital? So I start traders off with 50 to $100,000, right? My capital, we share the gains. But I'll take care of that. We need a candlestick chart, four key moving averages. Four key. There are more, but we're going to talk about four today. And I'm going to talk about my space concept with these moving averages, and my directional rules. Now, 50 to $100,000. All of my traders start off with $50,000. They have to show me with the things that I teach them their ability to make $3,000. It could take several weeks. It could take several months. But whenever they top $3,000, that is when we go into business together. I completely fund

3:07 them. They they never have to risk a single penny of their own capital. We divide the gains. If they lose my capital, it's my fault. All right? They are not responsible for the losses, but we do share the gains. I take care of the capital. Candlestick charts, guys. I am showing you a chart of Microsoft's trading activity today. And what we're looking at right here is a 10inut time frame. Each bar represents 10 minutes of trading. Green bars obviously are 10-minute periods that have gone up. Red bars are 10-minute periods that have gone down. Now, this con these concepts I'm talking to you today about can be utilized on any time frame. 1 minute, 2 minute, 5 minute, 30 minute, 60 minute,

3:52 daily, weekly, monthly time frame is irrelevant. You pick the time frame based on the duration of trades you're looking for. So, I like the 10-minute time frame for traders who are trying to capture a monster trends intraday. I don't like the 10-minute if you're holding stocks over days. That's more of a swing trading approach. But if you're looking to take a big chunk out of the market inside of the same day by capturing a stock's enduring intraday trend or move, the 10-minute is a wonderful time frame. Now, if you're looking for more uh frenetic day trading, 2 minutes is on five minute is a more appropriate time frame. But we're

4:38 gonna we're going to look at we're going to look at the 10-minute for NAP for now because moving averages are trending items and they're best utilized to capitalize on a nice trending market. Now, Microsoft, here's a 10-minute chart. We're going to superimpose a 20 period simple moving average on this chart. Now, all this moving average is doing is averaging the closing prices of the last 10-minute bars. It's smoothing out the data for us. It's giving us a a lagging picture that is smoother than the jagged price movement of the bars. Okay? And this is important. It's important to understand that moving

5:23 averages are lagging indicators. Understand this. They lag the price activity. That's a good thing. By the way, notice that on the left hand side of the chart, you have Microsoft declining and the 20 period moving average is declining. On the right hand side of the chart, um you have move Microsoft for the most part trending to the upside on top of a rising 20 period moving average. So, I like this chart because we're showing the two dominant states that we're trying to capitalize on utilizing moving averages. We're trying to capture trends to the downside when our stock or market is trending downward. And we want to take as much of that trend out of the market as possible. We want to capture the trend

6:10 to the upside as well. All right? And capture as much of that trend to the upside as is humanly possible. We're gonna also superimpose a 200 period moving average on the chart. Okay, here's a 200 period simple moving average, the red line. Right now, these two are two staple moving averages as far as I'm concerned. They are permanent fixtures on the chart. Okay, they are permanent fixtures on the chart. These two moving averages should never be off of your chart, traders. Never. Okay? You should always, no matter what time frame you're looking at, have a 20 and 200 on your chart. Whether it's a one minute, two minute, daily chart, weekly chart, it doesn't matter. This is a staple. The other ones you can actually have off the

6:55 chart, which I'm about to cover, but these never never look at a chart without these two moving averages. Okay? Now, I want you to take a look at the left hand side of the chart and notice that your 20 period moving average, right? And your your 200 and the price are relatively close together. Now, look at the middle where your 200 and your 20 are not close together. And go all the way to the right. And notice we come back to your 20 and your 200 and the price being clustered together again. So we go from together to apart back together again. This is going to become very important as we move forward. Okay, let's go. The next thing we need is a 13

7:41 period simple moving average. Now we've got the 200, we've got the 20. We're going to add a smaller brother to the mix here, the 13. These are all simple moving averages. If you are in love with the sexier varieties like the exponential, then use it. I have just in 33 years of professional trading and experimenting with virtually every single thing that you can ever think of, I have found no evidence that the sexier varieties of moving averages are any more superior than the basic simple ones. So whenever I get the opportunity to keep something simple, I keep it simple. Remember the KISS rule, keep it simple. when you can. Okay, so we've added the 13 period moving average,

8:28 which is now moving average is getting closer and closer to your price. Now, something interesting about this moving average. Notice that your 20 period moving average is not very relevant to the stock on the left hand side. Why am I saying that the 20 period moving average is not very relevant? Here is the key to finding which moving average of our mix is the most relative moving average. You have to see when your stock has a counterbalance. Where the bounce stops and resumes the trend. Whichever moving average is close

9:14 to that peak is your key moving average. You see at this point here the 20 per the 200 is not relevant. It's super far away. At this point the 20 is not relevant either. It's too far away to be relevant. We have to find which stock which moving average to operate on. Which is the most dominant moving average right now. Which trend is the which moving average is the stock's trend obeying more? It will never obey all of them at the same time. It will rarely obey two of them at the same

10:00 time. Most trends will pick a moving average to obey. And we've got to isolate which one that is. And I am giving you the secret to know which moving average to zero in on and put all of your attention there. In this case, we're going to put all of our attention on the 13 because it's last pullback stopped just short of the 13 and resumed the drop. Okay, if we go to the right hand side of the chart, we see that the stock rallies to the upside and then experience its pullback. Where where does the pullback stop and the movement to the upside resume? Where does it stop

10:49 and what moving average does it halt at? Does it halt at the 20? Does it halt at the 13? We have to find out which moving average is the dominant moving average and this is how we do it. So on the left hand side that pullback halts right at or near the 13. It doesn't have to touch it just become near it and resumes. This confirms that it is the 13 and not the 20 period moving average. And on the right hand side of the chart, the stock jumps above the moving average, pulls back and halts, and then resumes the move to the upside. That halting area halts right at or near the 13, further

11:34 confirming that the 13 is the dominant moving average, not the 20 on the way up as well. Now, knowing how to do this is extraordinarily important. get the wrong pick the wrong moving average and your trading is off. We can't do that. All right. Now, we need one more here. We need to add the 8 period moving average, which is even closer to this to the to to the action. Now, notice how we can tell that it's not the eight period moving average that's the dominant moving average because Microsoft's drop then pullback broke through the eight. So, once it breaks through the eight, we now know we're not dealing with the

12:20 eight. Let's see if it's going to obey the next moving average, which is the 13 period moving average. and boom, it obeys it. Okay, same here. As I mentioned, stock jumps above the moving averages, pulls back. We're going to we're asking ourselves, is it going to halt at the eight? Boom. It breaks through the eight. Okay. Is it going to halt at or near the 13? Boom. it it rallies failing to deeply penetrate the 13 giving us the indication that it's not the 8, it's not the 20, it's the 13 period moving average and we can actually drop the rest if we like. Now, here is something very very beautiful,

13:09 fascinating and beautiful. A lot of traders ask me, Oliver, um, can I keep all of the moving should I keep all of the moving averages on the chart or should I just drop those that are not dominant at the time once I identify my dominant moving average? Can I just drop the rest? You can, but this is where I'm suggesting traders at the space between your 8 period moving average and your 13 period moving average. Okay, take a look at the space. This zone, if you will. This zone is a very interesting zone because it's telling us where a turn should

13:57 occur. So as we slip between the eight and the 13, we can we can utilize that zone as a very interesting possible turn. When the c the desired color resumes the trend out of that zone, we strike. Okay, look. Notice how Microsoft slips back into the 8 to13 period moving average zone. All right. And then green takes us out of the zone. Boom. We strike on that green. So we strike the bar. We jump into the bar. Do you

14:42 understand? That takes us out of the zone. And this can help your timing. It can help your accuracy. And if you help your accuracy, traders, you're going to help your profitability, the consistency of your profitability. Take a look at these zones. Zone. Look at the red bar that takes us out of the zone. Boom. Look at the zone. And look at the green bar that takes us out of the zone. Boom. Now, how do you protect yourself? You protect yourself based on the bar that you just put your money in. If you put your money into this green bar, protect yourself under that green bar. If you went short on this red bar, protect

15:29 yourself above that red bar. We're not going to lose the bar more than the bar that we jumped into. That's how you protect yourself. Now remember, we have found that the 13 period moving average is our key moving average. So, we're going to ride the trend out as long as the stock does not violate that moving average by two bars. It's not enough to break the moving average with one bar. We need a two bar break. Guys, got to bring some lights back up. My space concept. Let's talk about space here. I want let's let's go back to this concept I started talking about just a little bit ago. go to the left hand side of your chart, right? And I want you to I want you to take a look

16:14 at how all of your moving averages are clustered together there. Notice how when the trend starts, the moving averages start separating from each other. Now, notice how we go when the the trend is in its most powerful state. The three moving averages had this three finger like um power trending formation. Three fingers spread apart. Okay? Almost like a a highway with a middle line and outer lines. Now notice how these lines as we get deeper and deeper away from the 200,

17:03 the moving averages start to get closer together now. And so now we go from this three fingers spread in a trending way to are narrower spaces between them until they get small again. Now that's an indication. These two are indications. The indication one that your moving averages have pulled away from the 200. As they have pulled away from the 200, they have come together once again. This is one of the strongest possible signs scenarios that we're about to snap back

17:48 in the opposite direction. This is always the $64,000 question in trading. it is when does a trend stop and begin to reverse in the opposite direction. And I'm giving you some of the components to that that answer that 64,000 to the answers to that $64,000 question. One of the one of some of the keys are are your three moving averages wide apart from your 200 and are they now close together? Again, if you can get that combination. Now, if you get a pop above your moving averages, notice on the left that your stock wasn't able to pop above all three

18:33 of them. It penetrated the eight and then dropped again. But when you clearly not in a feeble fashion, but the very next time you pop above those clustered moving averages, we need to read the next pullback. That's going to tell us what the dominant moving average is. Wherever it halts, it halts at the 13 as we mentioned. Boom. We buy the bar. It takes us out of the 8 to13 zone. And here begins our next play to the upside all the way back to a wide a narrow state again. So guys, markets repeat this these two states over and over

19:19 again. They go from narrow to wide and after wide back to narrow. Narrow to wide. Wide back to narrow. Now there's another narrow. There's narrow on the three moving averages. Wide and then back to narrow again for your three. And from narrow, we go back to trending apart from each other again until we repeat this. Narrow, wide, back to narrow. Narrow, wide, back to narrow. And this is where consistency comes from. People need to understand that the

20:08 market is almost trapped on rails. It repeats the same cycle over and over and over again. And I know it may not feel like it's the same, but it is exactly the same. The market's trapped on rails. This is where consistent consistency in your profitability comes from. Understanding the repetitive cycle and understanding where you are in the repetitive cycle. And these moving averages can tell you, am I in a narrow state? If I'm in a narrow state, we're about to move into a wide state, a trending state. If I'm in a trending state, we will at one point once we're wide away, we will at one point go back

20:54 to those three moving averages becoming narrow again. And now a reversal is more imminent than a continuation to the downside. Now once you understand these concepts, it just becomes a numbers game from here on out. Narrow moving averages. Narrow moving averages. Narrow moving averages. Now the thing that you have to don't miss this point, the three moving averages are sort of like the children that operate and play together. The 200 is like the parent. The children leave the parent for the wide state and come back eventually to be with the parent,

21:42 the 200. All right. So, there's two dynamics going on. The three can be close together. Then, when they start playing away from the parent, they separate from each other a little bit. Although they stay within the same vicinity of each other. All right? Then they get close together. They huddle again and say, "Now it's time to go back to our parrot." And then again, it is this cycle that repeats itself over and over and over again. And we play it this way every every single day. This is Microsoft's activity today. Now, some people will say, um, Oliver, um, what about movements to the upside? Well, I can show you movements above the

22:29 200 as well. Let me just quickly say this. Look, 85 plus% of all trading losses come from the inappropriate use of moving averages. Here's the thing. Most people are trying to buy against the moving averages. So, when you've got your 20, your 13, and your eight all flowing in one direction, they want to be smarter than the market and try to pick a bottom. when in fact you should just find a way to jump on board the stock on one of the pullbacks back toward the moving averages. All right, 85% of all losses are fighting the three moving averages, fighting the direction of the 20, fighting the direction of the 13.

23:16 Fighting the direction of the eight. When one of them is in one going in one direction, it's powerful enough. When three of them are going in in in one direction and you're on the other side of that, you're not only a losing trader, you're an unintelligent losing trader. It is unintelligent. It is not intelligent to go against all three of these. So, one of the first things you should do is look for stocks that have all three moving averages pointing upward or pointing downward. and insert yourself into that trend. When when the stock moves back toward the middle one most of the time when it moves back toward the

24:02 eight or the 13, then you jump on board the bar that starts moving you back away from the eight and 13. Protect yourself with the bar. It's a rather simple but very powerful approach. Let me show you another stock, Nvidia. Notice the same formula, the same type of scenario here. You got Nvidia to the left. This is activity yesterday and today, the 26th and 27th of October. You started off narrow. You went wide. Now, look at this. Look at Nvidia's bounce that did not break the eight. So Nvidia is saying the 13 is not the key moving average.

24:49 Neither is the 20 the key moving average. Nvidia is saying that it's the eight. So now we jump on board the bar that moves us away from the eight. Boom. Protect ourselves above the bar. Okay. On the upside, it is the 13. We break the eight and halt at the 13. So now it's the 13 that the stock is obeying. You've got this traders. You've got the four key moving averages and how to use them. And if you trade the majority of time in the direction of the 20, of the 13, of the eight, you're going to instantly improve your profitability and

25:36 your consistency. If you look for specific entry points to jump into that trend on retracements back to the 8 or the 13, sometimes all the way back to the 20 and then identify the bar that moves you away from the 8, the 13 or the 20, protecting yourself above or below that bar. You've got a dynamic moving average trading system. It sounds simple. It sounds basic, but most extraordinarily profitable things are. Traders, one last thing I'll show you is one on the upside. I think we had um

26:22 Baba today. All right. And here, take a look at your moving averages. Look at when the three moving averages are relatively clustered together. Look at the move above the moving averages. Now, this move was so powerful that it got virtually no retracements back to any moving average. That's how powerful that moving that that trend is. Now, you can keep going down the line. If you're not getting pullbacks to the eight, then you have to go to the next Fibonacci number, which is the five period moving average. This is extraordinarily rare to get a move with this type of power, which means that we have to find alternative ways to

27:08 enter, which I can teach you as well. Look at the left hand side of the chart. Look at the drop and the move back into that zone I told you about. Right back in between the eight and the 13. We jump into the bar that starts moving us away from the 13 again. We protect ourselves above that bar. And there's that beautiful sound again. Okay. If we look here, we can catch it early where we get above the moving averages. We pull back into the zone. I don't know if you can see that very clearly. We can jump back into the bar that moves us out of that zone.

27:56 All right. Powerful trend here in Baba today. Very, very powerful trend. Traders, basic, simple. A 12year-old can follow this. Most profitable things are just like that. We make the game more complex than it needs to be. We make the game more difficult. We bring difficulty to the market. We bring complexity to the market. We make it harder than it has to be. The market only goes up, down, and sideways. That's not a complex mechanism. The engine of a Ferrari is complex. The market is primitive. Up, down sideways repeat up down sideways, repeat. Narrow state, wide state, back to narrow state, trending

28:42 state. All moving averages down. Trending state all moving averages up. Buy zone between the 8 and 13. Sometimes sell zone between the 8 and 13. Sometimes get into the bar leaving the key moving average. Protect yourself above or below that bar. And that is your powerful simple profitable moving average trading system. Nap.